In his speech that concluded in little more than 9 minutes, Powell used the phrase ‘price stability’ nine times, which means once every minute on average, signalling that curbing inflation is the prime objective of the Fed over growth.
Powell’s speech sent US stock sinking on Friday as the benchmark indices plunged 3-4 per cent each on Friday. Dalal Street participants anticipate a similar knee-jerk reaction on Monday.
The hawkish Powell singalled third 75 basis point (bps) hike in September, bracing Indian markets for another rate hike in the next monetary policy meeting and the near term impact on the Indian equity markets will be negative.
VK Vijayakumar, Chief Investment Strategist,
said that the Fed chief warned of ‘some pain’ ahead in the economy. This indicates that the rate hike in September can be large, though he reiterated that the rate hike decisions will be data driven.
Markets will be concerned about the tight monetary conditions persisting longer than expected and the interest rates could remain high in the economy, the analysts said.
“Investors who cheered Fed’s dovish comments in July FOMC meeting and were pricing in rate cuts in early 2023 are hugely disappointed with this hawkish message from the Fed.” Ritika Chhabra, Economist and Quant Analyst, Prabhudas Lilladher.
On the other hand, a few analysts suggest that Powell’s comments were in line to the street expectations and trend reversal towards policy normalisation is unlikely anytime soon. However, they do not rule out a knee-jerk reaction.
His statements were in line to the market’s expectations, said Naveen Kulkarni, Chief Investment Officer, Axis Securities. “This makes the incoming US economic data more important to chart the future US Fed course of action” he added.
Aishvarya Dadheech, Fund Manager, Ambit Asset Management said that only new insight which came out of this speech was the Fed acceptance that economic growth might be compromised over inflation.
“With initial signs of the US economic data showing signs of deterioration, it will be interesting to see how far the Fed can stay on hawkish ground,” he added.
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